Thursday, December 5, 2019

Management Accounting Assignment

Questions: a. A plant manager recently made the following statement at a team meeting: No bean counter knows enough about my responsibilities to be of any use to me. As I see it, our accountants may be needed to keep records for shareholders and the Australian Tax Office, but I dont want them sticking their noses in my day-to-day operations. Required: As a management accountant, provide a suitable reply to the plant manager. b. Wayne Deng is reviewing the statement of cash flows for his technology business. The statement has been provided by his accountant. He is dismayed that the statement shows net cash outflows for investing activities. Required: Discuss if Wayne should be concerned by this. c. Your doctor knows that you are studying accounting. He has recently received the annual report for a company in which he is a shareholder. The financial report within the annual report is lengthy and your doctor requests your advice as to whether he should contact the company to complain that the financial information is not understandable. Required: Provide a suitable reply to your doctor. Answers: a. With the increasing complexity of the businesses in recent times, it is necessary to have accurate cost and performance information relating to the companys products, services, processes, and customers. The cost information is very useful in designing products that generates profits and also satisfies the customers. It is also used to decide on the product mixes and in improving the processes by eliminating non value added activities. The choice of supplier can be made with the cost information and efficient distribution channels can be developed to make deliveries to the target customers with the help of this information. The accurate cost information is provided by the management accountants with the help of costing systems that they use to record the data of costs incurred. Normally a large company would use Activity based costing system which allocated the costs to various activities due to which such costs have arise and on the basis of usage of these activities by the product, process of service, the overhead costs are allocated. Management accountant plays a very important role in managing the costing system and on the basis of the data provided by the ABC system; the plant manager can improve the existing processes, products or services. He can focus on the value added activities and eliminate the non value added ones. Though the management accountants are present on the plant floor to observe the activities, however the information provided to the plant manager in the form of periodic reports by the costing system being maintained by the management accountant can be used by the plant manager to improve processes and make them more efficient. The role of the management accountant is to collect and process the information into meaningful results which can be used by the management to plan, evaluate and execute their business strategy by designing suitable business processes which will be cost effective and give products that would be customer satisfactory and profit making. b. Cash Flows Statements are a part of financial statements of a company. Cash flow statement consists of cash flow from operations, cash flow from investing activities and cash flow from financing activities. A company needs to have a positive cash flow to pay for its operational expenses and capital expenditures. However, it is not necessary that all categories in the cash flow statement should have a cash inflow, rather cash from operations should definitely have a cash inflow since it is the money generated from the companys core business and this cash can be used for day to day expenses and for any capital expenditure, the company can source cash from financing activities like issue of shares, taking a loan etc. Cash inflows from investing activities include proceeds from sale of assets of the company like plant, machinery and equipment. It also includes sale of any investments which have been made in another companys shares. The cash outflows from investing activities include purchase of land, plant and machinery, up gradation of existing equipment, buying a stake in another company by taking over its operations, technology and customers. Hence we see that most of the cash flow is in the form of outflow only where the company is spending in order to increase the value of its assets which will rather bear fruits for the company in the future. It is more likely for a cash flow from investing activities to be negative only. Also a company makes short term investments to make profits from increase in the other companys shares. All the investments made today which is resulting in negative outflow of cash will help the company in earning profits in the future and the cash flow will come indirectly from the increased revenues resulting from utilization of assets purchased and this inflow will come from cash flow from operations. Therefore, we can say that it is of no concern to have a negative cash flow from investing activities because the nature of the activity is such that it is rather good to have a negative figure because a positive cash flow means the company has sold off its assets and hence the financial position of the company gets affected in a negative way. A company with higher and useful assets is in a position to generate higher revenues with proper utilization of these assets. c. Annual reports are financial reports which are required to be issued annually by all companies listed on the stock exchange. It contains information related to the companys performance over the year. The growing complexity of the financial information has made the annual reports very complex and difficult to understand as the annual report should present all the information required by different stakeholders who have different demands. The UK Financial Reporting Council (FRC) requires all the companies to present annual reports which are fair, balanced and understandable and it also requires the external auditors to provide a confirmation of the company abides by the same. The UK corporate governance code has been revised to accommodate the above requirement and also states that the directors of the company should take the responsibility of presenting financial information which is necessary for the stakeholders to assess the companys performance and is fair, balanced and understandable. As a result of this requirement, most of the emphasis is laid on the front half of the report which is the narrative reporting as this reporting is meant for an ordinary shareholder which can be understood easily. The back part or the second half is more complex and is often used by analysts for valuation purposes. The aspects included on the first half of the annual report include the CEOs or the Chairmans statement which will gen erally give the positive aspects of the company, the review of operations , risk management techniques discussion and any special news relating to the company. Both good news and bad news should be mentioned in narrative reporting. For a financial report to be understood, it is important that the non financial information given should relate to the companys business model, strategies, and performance. Also it should be linked to the second half of the financial information. In case a company is unable to provide a fair, balanced and understandable financial report, a shareholder who is considered to be an informed reader may file a complaint with the FRC for the company not following the corporate governance code. References Wahlen, J.M., Baginski, S.P, Bradshaw, M., (2010), Financial Reporting, Financial Statement Analysis, and Valuation, A strategic Perspective, South- Western Cengage Learning ACCA, (2015), Accounting for Leases, accessed online on 26th May, 2016, Pwc, (2013), Practical Guide to Corporate Governance, 2013 reporting changes implementation and disclosure Kpmg, (2012), UK Corporate Governance Code (Revised 2012), Audit Committee Institute Fraser, I., Lee, B., (2016), Fair, Balanced and Understandable: Enhancing Corporate Reporting and Assurance? , Research Committee of ICAS Bruce, R., (2008), Financial Reporting: The Trouble with Annual Reports, Financial Times, accessed on 26th May, 2016.

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